Risks and Threats Posed by Coupon Codes

While codes can be a great tool for online marketers to drive traffic and increase sales, they also present their own challenges and unique threats. As the market has matured, new opportunities have become available to clever affiliates and websites looking to profit off of visits from deal hunters.

When online merchants were just starting to adopt codes, there were few risks outside of technical concerns regarding their own systems’ functionality. So the first codes appeared—usually in specialty email outreach campaigns. Believing their audience would simply use or ignore the codes, marketers were comfortable targeting specific customer subsets with certain offers. And these marketers were right to believe so. Why should codes have spread to unintended audiences? No major social network existed. No coupon sites existed. No bargain shopping blog was widespread. Merchants were the channel for coupons.

The “Content Race” of Coupon Sites

One of the first coupon code websites, Coupon Mountain, launched in 2001 following the adoption of coupon codes at retail websites. The idea made sense: web-savvy shoppers wanted a place to find coupons. By attracting all that traffic, surely Coupon Mountain could start to make some money.

And thus began the coupon affiliate business model. Coupon Mountain found they could make money from commissions by directing coupon traffic to retailers. And soon, many other coupon sites started sprouting up. Today, just a cursory search for “coupon codes” reveals dozens of options for the discount shopper.

This introduced an all-important factor: competition. And the market changed significantly. Now that coupon sites were competing for users, they needed something distinctive to attract visitors. Somewhere along the line they had to be better: deeper discounts, wider selection, exclusive codes, increased timeliness.

That was when the Content Race started. The major incentive for each coupon site: have more coupons than your competitors. Do not let others have a larger inventory of valid coupons than you.

Sites and Forums with User-Generated Content

Some sites, such as Slickdeals.net, source their codes from users rather than from their staff or merchant partners. In this model, sites do not copy coupons with the express purpose of gaining a competitive edge. Instead, their focus is on fostering a trustworthy community—one where members can rely on each other to post for the community’s benefit, not for their own personal advantage.

But while these sites prevent intentional violations for competitive gain, they do not prevent accidental infringements by their members. In fact, they tend to reward these behaviors with responses such as “nice find” when a fresh code is posted. Users are often unaware of any foul play or code misuse on their part. The result: these sites may actually be more likely to copy coupons.

Misuse and Other Issues: How Coupon Codes Can Become a Liability

These dynamics create difficulties for many marketers, each with their own distinct coupon strategy. Whether the marketer uses a group of coupon sites as affiliates, only promotes certain offers through specialty sites, or has no direct relationship with any coupon sites at all, they are likely to be affected.

Some common forms of abuse include:

Targeted Codes Leaking to Outside Channels

Let’s say, for example, that an online retailer notices that some of its usually loyal customers have not logged into their accounts in a while. To encourage these customers to return, the well-intentioned marketer issues a specialty coupon code through an email campaign. Although the coupon creates a small short-term loss, the retailer expects to recoup that by motivating long-term loyalty from those customers.

But unfortunately, just one site posting the code can start a chain reaction. Once it makes it onto its first coupon site, it will soon appear on many others. At this point, the key becomes mitigating the losses. A wave of unwanted couponers can rapidly crash through the system and cause serious losses.

Take It, or Leave It?

Once the chain reaction starts, merchants are left with a difficult choice: A) deactivate the code or B) leave it up? Either way, the merchant absorbs a significant cost. In option B, the cost is more obvious—losses associated with the widespread discount in price.

But option A’s costs, though more hidden, can become more of a threat to the merchant. These costs are to the brand image: negative customer experience, frustration, and even account desertion. In the long run, these may be even more significant than short-term monetary losses.


Proliferation of Partner-Specific Codes Around the Web

In other cases, marketers may develop strategies for spreading their coupons via coupon sites, affiliate blogs and other sources. Whether their goal is gaining a new set of customers or clearing out inventory, they are very intentional about what sites they partner with and how they engage with them.

For instance, take a coupon site that serves as an affiliate for a merchant. The merchant has a special relationship with this affiliate coupon site, in which the coupon site prominently displays the merchant’s coupons. In exchange for this treatment, the merchant provides the coupon site with special, deeply discounted coupon codes.

All is well if only this website displays the unique code. Just a portion of potential buyers find the coupon. But what if the code were to reach other, unauthorized sites? The merchant cannot afford for everyone to find this same code. And if they start to, the merchant might be on the hook for a slew of slashed prices that they did not intend.


Fake and Fraudulent Codes

These may be the most insidious threat of all. Easier to ignore because they do not directly affect the bottom line, fake and other falsely manufactured codes can go unnoticed by merchants for quite some time.

But current and prospective customers will notice. They actively search for codes. And unfortunately, they cannot be sure whether or not a given code works until they test it for themselves. The main precautionary measures taken by coupon sites: 1) displaying the success rate of a given code, as reported by their users, and 2) taking down codes that are confirmed as false.

This often creates significant lag time between a false code being published and being taken down. The majority of coupon site users give no feedback about success rate, so a false code can easily go unreported for a significant period. During that time, each visitor attempting to use the code has a negative experience—exactly the opposite of the brand’s intent with their coupon program.

NOTE: These can also affect brands who do not issue coupon codes at all. For example, although Brand X’s website may not even support coupon codes, a user might submit a false code to a website for others to see. The end result is the same: a poor experience for the customer. This topic is explored further in the following section.


Affiliate Blogs, Discount Shopping Sites, and Other Coupon Publishers

Outside of pure coupon sites, there are incentives both for affiliates and non-affiliates to distribute codes. Whether it’s to increase their organic search traffic or improve click-through to a merchant’s site, they generally stand to gain by posting codes.

The main deterrent: the penalties these websites might incur if they are found to be in violation of the merchant’s policies—or of other legal regulations. But the policies and laws surrounding these issues are often complex and/or unfamiliar. And for that reason, managers of these websites can easily be unaware of their responsibilities. When they misstep, they may need to be informed or reminded of the rules. Therefore, to ensure compliance, merchants must actively monitor their codes.


Affiliate Sites Co-opting Codes

Consider, for a moment, the cost-benefit equation for a given affiliate. Let’s call it “Wade’s Widget Website.” This affiliate runs a content-heavy blog that covers everything widget-related, and gets paid on a CPA (cost per acquisition) model at merchant “Widget World.” When a coupon code appears on another website, should Wade place the code on his own website?

By posting the code, Wade will almost surely increase his commissions from Widget World. The conversion rate of coupon users is high. These shoppers tend to be highly motivated to purchase, as they believe they are getting a deal. The clicks that Wade can push through to the merchant’s site are likely to result in sales—and plenty of commission money.

But can the merchant afford to pay those commissions? By skimming even more off the normal selling price, the commissions can cause harm—especially if Widget World never intended for the code to be used by affiliate traffic. In fact, the merchant could even end up losing money as a result of this behavior by Wade.

So what’s stopping Wade? If Widget World finds out, he could receive a warning—or simply be expelled from their program entirely. The key is that “if”: whether the merchant will find out or not. If Wade believes he can get away with publishing the code, he can take the risk for some short term gains.


Non-Affiliate Sites and the Chain of Copying

One rather interesting dynamic often occurs with coupon codes. It generally goes like this:

  1. Merchant publishes the code outside of the affiliate channel (email campaign, merchant website, social media, or elsewhere).
  2. Affiliate copies that code and posts it on their site.
  3. A non-affiliate site scrapes the code from the unauthorized affiliate site, then posts it to their own site.

The process tends to follow this pattern. Affiliates do the work to uncover codes, enticed by the potential for better click-through rates and higher commissions. Then, not wanting other sites to gain an advantage (by offering a greater selection of coupons), non-affiliates copy the codes.

For merchants looking to maintain order in their coupon program, early detection is very important here. It is generally simpler to ensure compliance with affiliates than with non-affiliates. Affiliate contracts and the threat of program removal provide the merchant with leverage in those cases. And since the non-affiliates usually follow the affiliates, taking codes down from unauthorized affiliate sites can prevent codes from going viral. It cuts off so many sites down the line.


CouponCabin, Inc. v. Coupon Chief, Inc.

In certain situations, affiliates may take it upon themselves to protect codes. Given the complexities resulting from merchants’ degrees of removal from third-party sites, this would be a welcome alternative.

CouponCabin took this exact approach in a 2009 case against Coupon Chief. After noticing that its exclusive vanity codes were being repurposed on Coupon Chief’s site, CouponCabin filed a complaint asserting trademark infringement, unfair competition, tortious interference with contractual relations, and unjust enrichment.

The case hinged upon the fact that CouponCabin’s vanity codes each included its brand name—or at least some variation of it (the primary example simply being the code “couponcabin”). Ultimately, the case was settled out of court, with Coupon Chief agreeing to cease posting codes that include any CouponCabin trademarks, develop software to prevent users from submitting such codes, and pay an undisclosed amount to CouponCabin.

Despite the lack of a final verdict, this has set an interesting precedent. Vanity codes seem to be the key to developing some form of recourse against third-party sites. By providing coupon affiliates with trademark-based vanity codes, those unique codes can at least establish a reasonable basis for legal action. Although indirect (relying upon affiliates to take such action), this may prove to be a useful point of leverage for merchants.

CouponCabin’s current Terms of Use contain some language that may be relevant to coupon affiliates, and to merchants considering this as an option for their affiliates. The section reads:

“Except as may be explicitly permitted through the Site, you agree not to save, download, cut and paste, sell, license, rent, lease, modify, distribute, copy, reproduce, transmit, publicly display, publicly perform, publish, adapt, edit, catalogue, aggregate, or create derivative works from materials, code or content on or from the Site.”

For further implications of this significant case, see the Justia page for CouponCabin, Inc. v. Coupon Chief, Inc. Unfortunately, you will need a PACER account to access the documents.


More Information

We have noticed a few scams in which sites pose as legitimate coupon sites, requesting personal information from visitors. Articles about these can be found on our blog here and here.

Other Causes for Concern

Though less malicious than their fraud- and abuse-based counterparts, there are other dangers to leaving coupon codes unsupervised. These include:

Expired Codes

Though they were once legitimate, these end up giving the customer the same experience as a fake or fraudulent code. The customer logs in, works through all the steps leading up to checkout, and enters the code in the promo box—only to be denied then and there.

While some shoppers may choose to simply shell out more money, many others will respond negatively to the brand. And their complaint can easily go public, given the convenience of social media sharing. Ultimately, the merchant may be risking the loss of far more sales down the road.

Slowed Ramp-up of Coupon Campaigns

If a coupon code is taking too long to move the needle, the promotion itself may not be to blame. Certain affiliate sites may simply have forgotten to post the code—or could be slow to respond.

By monitoring codes from the moment they are launched, merchants can keep track of which partners may be lagging behind. And accordingly, merchants can remind these affiliates to post their codes.

Reluctance to Use Coupon Codes in Marketing

Concerned about the exposure and vulnerability introduced by coupon codes, some marketers have elected to strike these promotions from their marketing plans. This narrows their options. And unfortunately, also makes it more difficult for these marketers to respond to fluctuations or buying cycles.

With a system in place for monitoring abuse and other issues, marketers can reclaim the opportunities afforded to them by coupons.